“These measures do not involve any cash outflows and do
not affect the strength of the group,” the Montrouge-based bank
said in a statement today. While the goodwill charges come
“primarily” from complying with tighter rules, “they also
reflect the present macro-economic and financial environment in
the relevant countries and business lines,” it said.

Credit Agricole’s total one-time charges, which include
costs related to a revaluation of its own debt and a writedown
on its stake in Portugal’s biggest publicly traded bank, will
reduce the bank’s net earnings by about 3.8 billion euros.
Credit Agricole, which had 16.9 billion euros in goodwill on its
balance sheet at the end of September, is taking the writedowns
following recent recommendations from the European Union’s
markets authority.

The European Securities and Markets Authority called on
Jan. 21 for improvements in disclosures after reviewing 800
billion euros of goodwill assets at 235 companies in 23
countries across Europe. Goodwill is an accounting convention
that represents the amount paid for an acquisition over and
above the fair value of its net assets.

‘Cleaning Operation’

While writing down goodwill doesn’t deplete capital, it
reduces profit and signals a company overpaid for acquisitions.
Deutsche Bank AG, Germany’s largest bank, yesterday took 1.9
billion euros of writedowns on goodwill and other intangible
assets. ArcelorMittal, the world’s largest steelmaker, said in
December it will write down the goodwill in its European
businesses by about $4.3 billion as the region’s weakening
economy erodes demand.

“The cleaning operation is still ongoing” at European
banks, Jacques-Pascal Porta, who helps manage 800 million euros
at Ofi Gestion Privee in Paris and doesn’t own Credit Agricole
shares, said in an interview before the announcement. “But even
heavy losses are easier to swallow as confidence has returned in
the markets since last summer.”

Credit Agricole rose as much as 3.6 percent in Paris
trading, after initially slumping, and was up 2 percent to 7.43
euros at 9:55 a.m. The stock has gained 16 percent in Paris
trading since the bank agreed on Oct. 16 to sell its
unprofitable Greek unit, Emporiki Bank, to Alpha Bank SA for a
token price of 1 euro.

Goodwill ‘Harmful’

Credit Agricole, controlled by 39 French regional banks,
has a market value of 18.2 billion euros. It is scheduled to
report earnings in full on Feb. 20.

“Goodwill is particularly harmful in the banking
industry,” Bonnafe said at a Jan. 30 parliamentary hearing.
Bonnafe wasn’t referring to Credit Agricole.

Credit Agricole invested 2.2 billion euros in 2006 to buy
Athens-based Emporiki, and has written down the Greek unit’s
goodwill in recent years. Credit Agricole expanded in southern
Europe after its 2003 purchase of Credit Lyonnais SA, which
strengthened its lead in French consumer banking.

Newedge, Italy

Credit Agricole’s goodwill writedowns include 466 million
euros on its corporate- and investment-banking unit, 366 million
euros on Newedge Group SA, a brokerage joint-venture with
Societe Generale SA, and 852 million euros on Credit Agricole’s
Italian branch networks, the bank said.

Societe Generale, France’s second-largest bank, said Jan.
16 that it expects a goodwill charge on its stake in Newedge,
without giving the amount. Newedge is cutting costs and jobs as
the derivatives brokerage seeks to offset declining volumes and
adapt to new European rules.

Only Banco Santander SA’s goodwill assets surpassed those
of Credit Agricole among European banks at the end of September,
according to analysis from Bloomberg Industries. BNP Paribas had
11.1 billion euros of goodwill on its balance sheet at the end
of September, while Societe Generale had 6.6 billion euros at
the end of June, according to the banks’ websites.

Credit Agricole is also taking 850 million euros in pretax
charges from the revaluation of its own debt. Banks book
accounting charges or gains tied to the theoretical cost of
buying back their own debt as market prices fluctuate.

Credit Agricole also wrote down by 267 million euros its
20.2 percent stake in Portugal’s Banco Espirito Santo SA and
booked a tax expense of 130 million euros on its insurance
businesses. Credit Agricole SA reiterated it will book about 160
million of fourth-quarter losses as its French regional lenders
depreciate the value of their shares in the publicly traded
bank.